Mortgage delinquencies skyrocket, Obama's programs not helping much

The combined mortgage delinquency and foreclosure rates hit 14.41% on a non-seasonally adjusted basis -- the highest ever on record, according to the Mortgage Bankers Association's National Delinquency Survey released Thursday.

The MBA reported that in the third quarter of 2009, loans 90 days or more past due, loans in foreclosure and foreclosures started all set new records. Only the percentage of loans 30 days past due is still below the record set in the second quarter of 1985.

"Prime fixed-rate loans continue to represent the largest share of foreclosures started and the biggest driver of the increase in foreclosures," wrote Jay Brinkmann, MBA's Chief economist in a press statement released with the report. He added, " The foreclosure numbers for prime fixed-rate loans will get worse because those loans represented 54% of the quarterly increase in loans 90 days or more past due but not yet in foreclosure."

Foreclosure and Delinquency Rates to "Worsen Before They Improve"

Not surprisingly, the hardest hit states continue to be Florida, Arizona and Nevada. In fact, 43% of all foreclosures started in the third quarter were in these three states. They also claimed 37% of the nation's prime fixed-rate loan foreclosure starts and 67% of the prime adjustable-rate mortgage foreclosure starts. A staggering 25% of all mortgages in Florida were at least one payment past due, according to the delinquency survey.

Brinkmann added, ""The outlook is that delinquency rates and foreclosure rates will continue to worsen before they improve. First, it is unlikely the employment picture will get better until sometime next year and even then jobs will increase at a very slow pace. Perhaps more importantly, there is no reason to expect that when the economy begins to add more jobs, those jobs will be in areas with the biggest excess housing inventory and the highest delinquency rates. Second, the number of loans 90 days or more past due or in foreclosure is now a little over 4 million as compared with 3.9 million new and previously occupied homes currently for sale, although there is likely some overlap between the two numbers. The ultimate resolution of these seriously delinquent loans will put added pressure on the hardest hit sections of the country."

Will HAMP, HASP, and HARP Help Troubled Homeowners?

So why aren't the Obama administration's mortgage programs helping to stem the tide of mortgage defaults? Mark Zandi, chief economist and co-founder of Moody's Economy.com, shed some light on this during his testimony Thursday at the Congressional Oversight Panel's hearing on the effectiveness of TARP.

About $50 billion of the TARP funds were targeted at the Housing Affordability Stability Plan (HASP), which funds both the Home Affordability Mortgage Plan (HAMP) to modify loans of people in trouble and the Home Affordability Refinancing Plan (HARP) to help refinance loans. These programs were announced with much fanfare in February 2010 with the promise of helping as many as 9 million homeowners.

Zandi told the panel that for "HAMP to work more effectively, it will have to be modified to include incentives for mortgage servicers and owners to engage in principal writedowns. At this time, this seems less likely given pernicious and unanswered questions about moral hazard, adverse selection and fairness, although this could change if house prices resume declining next year and threaten the fragile economic recovery." He expects only about 500,000 to 750,000 homeowners will actually qualify for permanent loan modifications under HAMP, which is much less than the 3 to 4 million promised by President Obama when he first announced the program.

HARP hasn't helped many people because they are finding that the "interest rate being offered on refinancing is not low enough to cover the transaction costs involved, at least sufficiently quickly. The rates are higher as credit characteristics of many potential refinancers have weakened as they have become casualties of the very difficult economy," Zandi added in his testimony.

So what's next? Mostly a growing number of foreclosures -- unless we see significant improvement on the job front. If house prices, which appear to be stabilizing right now, take another nosedive as foreclosures continue, the spiral downward could only get worse.

Lita Epstein has written more than 25 books including The 250 Questions You Should Ask to Avoid Foreclosure and Surviving a Layoff: A Week-by-Week Guide to Getting Your Life Back Together.